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Exam 5: Master Budgets

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Question 61

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On June 30,Kahlil Company's cash balance is $4,000.Kahlil is now preparing their cash budget for the third quarter of the year.The following data is provided: $\begin{array}{|l|r|r|r|}\hline \text { Cash budget } &{\text { July }} &{\text { Aug }} &{\text { Sep }} \\\hline \text { Beginning cash balance } & \$ 4,000 & \$ 8,000 & \$ 6958 \\\hline \text { Plus: Cash collections } & \underline{50,000} & \underline{40,000} & \underline{49,000} \\\hline \text { Cash available } & \$ 54,000 & \$ 48,000 & \$ 55,958 \\\hline \text { Less: Cash payments } & & & \\\hline \text { Purchases of direct materials } & 31,000 & 22,000 & 17,100 \\\hline \text { Operating expenses } & 12,000 & 9,000 & 11,000 \\\hline \text { Capital expenditures } & 13,000 & 25,000 & 0 \\\hline \text { Interest expense at } 5 \% & \underline{0} & \underline{42} & \underline{104} \\\hline \text { Less: Total cash payments } & \$ 56,000 & \$ 56,042 & \$ 28,204 \\\hline \text { Ending cash balance before financing } & \$(2,000) & \$(8,042) & \$ 27,754 \\\hline \text { Minimum cash balance desired } & (5,000) & (5,000) & (5000) \\\hline \text { Cash excess/(deficiency) } & \$(7,000) & \$(13,042) & \$ 22,754 \\\hline \text { Financing } & & & \\\hline \text { Borrowing at end of month } & 10,000 & 15,000 & \\\hline \text { Principal repayments at end of month } & & & \$(20,000) \\\hline \text { Total effects of financing } & 10,000 & 15,000 & (20,000) \\\hline \text { Ending cash balance } & \$ 8,000 & \$ \$, 958 & \$ 7754 \\\hline\end{array}$ The amount of cash that should be shown in the budgeted balance sheet as of September 30 would be ________.

A) $6958
B) $55,958
C) $7754
D) $22,754

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Question 62

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Hutchinson,Inc.provides the following data taken from its third quarter budget: The cash balance on June 30 is projected to be $12,000.Based on the above data,calculate the shortfall the company is projected to have at the end of August.

A) $34,000
B) $23,000
C) $13,000
D) $38,000

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Question 63

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From the following details,provided by a merchandising company,prepare the selling and administrative expenses budget for the first quarter of the next year. $\begin{array} { | l | l | } \hline \text { Rent Expense } & \$ 8,000 \text { per month } \\\hline \text { Depreciation Expense } & \$ 3,500 \text { per month } \\\hline \text { Insurance Expense } & \$ 1,250 \text { per month } \\\hline \text { Miscellaneous Expense } & 2 \% \text { of sales, paid as incurred } \\\hline \text { Commissions Expense } & 10 \% \text { of sales } \\\hline \text { Salaries Expense } & \$ 7,000 \text { per month } \\\hline\end{array}$ $\begin{array} { | l | l | l | r | } \hline & \text { Jan } & \text { Feb } & \text { March } \\\hline \text { Sales } & \$ 50,000 & \$ 65,000 & \$ 80,000 \\\hline\end{array}$

Verle,Inc.has a cash balance of $20,000 on April 1.The company is now preparing the cash budget for the second quarter.Budgeted cash collections and payments are as follows: $\begin{array}{|l|r|r|r|} \hline&{\text { Apr }} &{\text { May }} &{\text { Jun }} \\\hline \text { Cash collections } & \$ 22,000 & \$ 22,000 & \$ 24,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of direct materials } & 4600 & 5000 & 6800 \\\hline \text { Operating expenses } & 6000 & 4600 & 6000 \\\hline\end{array}$ There are no budgeted capital expenditures or financing transactions during the quarter.Based on the above data,calculate the projected cash balance at the end of May.

Which of the following is NOT a benefit of benchmarking?

When a manufacturing company prepares the budgeted balance sheet,the balance of the Accounts Payable account is taken from the cash budget.

Beridze Manufacturing expects to produce 2900 units in January and 3600 units in February.Beridze budgets $20 per unit for direct materials.The amount of indirect materials needed for production has been determined to be insignificant and will therefore not be considered in the calculation.The balance in the Raw Materials Inventory account (all direct materials) on January 1 is $38,650.Beridze desires the ending balance in Raw Materials Inventory to be 10% of the next month's direct materials needed for production.Desired ending balance for February is $51,100.What is the cost of budgeted purchases of direct materials needed for January?

Cost behavior is considered in developing the selling and administrative expense budget as costs are designated as variable or fixed.

Stratosphere,Inc.has the following budgeted sales for the next quarter. $\begin{array} { |l | r | r | r| } \hline \text { Month: } & \mathbf { 1 } & \mathbf { 2 } & 3 \\\hline \text { Units } & 10,000 & 11,000 & 12,000 \\\hline\end{array}$ Inventory of finished goods on hand at the beginning of the quarter is 4,000 units.The company desires to maintain ending inventory equal to beginning inventory plus 1,000 units every month. Calculate the quantity to be produced during the quarter.

A manufacturing company has prepared the operating budget,the cash budget,and the budgeted income statement and is now preparing the budgeted balance sheet.The balance of Retained Earnings can be taken from the ________.

After comparing budgets with the actual results,the feedback allows managers to determine what,if any,corrective action should be taken.

A strategic budget will be as detailed as an operational budget.

A budgeting technique that requires managers to justify all revenue and expenses for each new period is called ________.

Which of the following statements is TRUE of the budgeting process?

For a merchandising company,what is the final step in the master budget process?

Which of the following statements regarding capital expenditures is incorrect?

Calder Water Company has budgeted direct materials inventory purchases as follows: October: $300,000 November: $360,000 December: $460,000 Calder pays for 20% of their purchases during the month of purchase,70% during the month following the purchase,and the remaining 10% two months after the month of purchase.What is the budgeted accounts payable balance on December 31?

The budgeted production of Capricorn,Inc.is 13,000 units per month.Each unit requires 30 minutes of direct labor to complete.The direct labor rate is $80 per hour.Calculate the budgeted cost of direct labor for the month.(Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)

A static budget is a financial plan for only one level of sales volume.

Use of advanced technology makes it more cost effective for managers to conduct sensitivity analysis.